Hedge-fund manager David Einhorn said legal scrutiny of credit ratings issued by McGraw-Hill Cos.’s Standard & Poor’s shows why that company and rival Moody’s Corp. are vulnerable to stock slumps.
The U.S. Justice Department sued McGraw-Hill this month, saying the ratings firm misstated the risks of mortgage bonds, whose collapse helped trigger the credit crisis. The New York-based company has said the lawsuit is without merit.
“The recent case against S&P is a negative for the ratings agencies, and Moody’s is not immune,” Einhorn said today in a conference call discussing Greenlight Capital Re Ltd., the Cayman Islands-based reinsurer where he is chairman. “We are short both Moody’s and S&P’s parent, McGraw-Hill.”
McGraw-Hill fell 1.5 percent to $45.43 at 9:43 a.m. in New York trading. The company has declined about 17 percent this year after rallying 22 percent in 2012. Moody’s slipped 1.3 percent to $47.92, extending its drop for the year to about 4.8 percent. Moody’s surged 49 percent last year, hurting investment results at Einhorn’s reinsurer.
“Our biggest loser on the short side last year was Moody’s,” Einhorn said.
Greenlight Re slipped 1.1 percent today. The company posted a fourth-quarter loss yesterday as investments faltered and superstorm Sandy fueled catastrophe claims.